COMMODITY MARKET

TEJASVEE CHAVAN 910307 NEHA GAIKWAD 910310BHAGYASHREE GAWADE 910311SHRUTI KOLI 910321PRIYANKA PHADTARE 910331PRIYANKA SHINDE 910341RUJUTA ZAJAM 910344

COMMODITY MARKET

A commodity refers to any good, merchandise or produce of a land that can be bought and sold. A “commodity” is an article or product that; •Is used for commerce,•Is moveable,•Has value,•Can be bought and sold,•Is produced or used as a subject in a barter or sale.

VALUE CHAIN

PRODUCERS

ASSEMBLERS

TRADER

PROCESSORS

DISTRIBUTERS

RETAILERS

CONSUMERS

PHYSICAL COMMODITY MARKET:

Traditional market.

Spot contract.

Settlement in cash.

Buyer can select and buy the specific commodity required.

FEATURES OF COMMODITY MARKET

•Setting up Mandis•Products•Participants•Trading•Price•Clearing, Delivery and Settlement•Regulation

DERIVATIVES A derivative is a financial instrument whose value

depends on or is derived from the value of an underlined asset

The underlined asset could be:• Commodity• Foreign exchange• Equity• Interest rate• Index• Weather• Pollution

Commodity derivative is a contract to either buy or sell a commodity at a certain time in future at a price agreed upon at a time of entering into the contract

TYPES OF DERIVATIVE

•FORWARDS•FUTURES•OPTIONS•SWAPS

DERIVATIVES ARE TRADED IN 2 DIFFERENT MARKETS

OVER THE COUNTER (OTC) MARKETS

EXCHANGES TRADED

• FORWARDS• SWAPS

• FUTURES• OPTIONS

OVER THE COUNTER

•Market conducted directly between dealers and principals.•No automatic disclosure of the price of deals.•Deals and traded instruments are not standardized.•Major OTC derivatives are forwards and swaps.

FORWARD

Highly Customise And Not Traded On Exchanges.Specified Future Date Is Called As Maturity Date The Parties That Agrees To Buy Is Said To Have Taken A Long Position.The Party That Agrees To Sell Is Said To Have Taken A Short Position.

COMMODITY SWAPS

•Swaps means an exchange•To exchange 2 different streams of cash flows which are dependent on the price of an underlined commodity.•A commodity swap is used to hedge against the price of a commodity.

EXCHANGE – TRADED DERIVATIVES

•Futures Common Terminology Used In Futures Contract:•Spot Price•Futures Price•Contract Cycle •Expiry Date •Delivery Unit •Basis •Margin

OPTION

An option is an agreement between two parties – one of whom is the buyer and the other is seller. An option gives the holder or buyer of the option the right. But not the obligation to buy or sell an asset at a known fixed price ( called the exercise price) at a given point in the future.

Two Types Of Option

•Call Option

•Put Option

Several Terms Used In The Context Of Option•Buyer/Holder/Owner•Seller/ Writer•Long Position•Short Position•Option Price

COMMODITY DERIVATIVES v/s FINANCIAL DERIVATIVES.

Risk Management ToolHedging MechanismDifference In Commodity Derivatives And Financial Derivatives In Terms:•Physical Settlement •Warehousing•Quality Of Underlying Assets

COMMODITY DERIVATIVES FINANCIAL DERIVATIVES

Commodity derivatives may be settled by actual deliveries.

Financial derivatives are only cash settles on the given day.

Quantity and quality differences exit. No quantity and quality differences exit.

Holding cost includes assaying, warehousing and insurance costs.

Holding cost normally consists of only interest costs.

Physical markets are seasonal in nature.

Financial markets are active throughout the year.

Factors impacting: Demand and supply Import – export regulations Government intervention

Factors impacting: Global and local economic conditions Performance of the entity Taxations structures.

Types Of Trader•Proprietary Traders• Market Makers•Scalpers•Day Traders•Position Traders

HEDGING

BASIC PRINCIPLES OF HEDGING

Hedgers are market participants who want to transfer risk. Hedgers include various sets of people such as , consumers, processors traders and producers.

HEDGING STRATEGIES

There are two main hedging strategies: •Short Hedge

•Long Hedge

SPECULATIONSPECULATION

BASIC PRINCIPLES OF SPECULATION Buying and holding shares is simpler than buying and holding commodities. However, speculating in the futures market of commodities is quite similar to speculating in financial markets

ARBITRAGEBASIC PRINCIPLES OF ARBITRAGE

Arbitrage involves the simultaneous purchase and sale of the same or similar asset in two different markets for different prices, leading to profits for the arbitrager

GLOBAL COMMODITY EXCHANGES

Oldest commodity exchanges in the world :1. Chicago board of trade (CBOT)2. Chicago mercantile exchange (CME)

AFRICA ASIA LATIN AMERICA

SAFEX China BrazilZIMACE Malaysia Argentina

Taiwan MexicoIndonesiaSingaporeThailandIndia

COMMODITY EXCHANGES IN DEVELOPING ECONOMY

FMC

COMMODITY EXCHANGES

REGIONAL EXCHANGE

NATIONAL EXCHANGES

NBOT 20 Other Regional ExchangeMCXNMCENCDEX

FUNDAMENTAL ANALYSIS OF SUGAR

SUGAR SEASONS: October-septemberGlobal Demand ScenarioGlobal Supply ScenarioPricing Pattern Of Sugar-global ScenarioIndian ScenarioDemand Scenario

SY 2000 2001 2002 2003 2004 2005

NUMBER OF FACTORIES1. COOPERATIVES2. OTHERS

INSTALLED CAPACITY THOUSAND TONNES

3. COOPERATIVES4. OTHERS

PRODUCTION THOUSAND TONNES

5. COOPERATIVES6. OTHERS

CAPACITY UTIL%7. COOPERATIVES8. OTHERS

423251172

16,181

9,0697,112

18,20010,3697,831

112.5114.3110.1

436259177

16,820

9,2867,535

18,51110,4998,012

110.1113.1106.3

434250184

17,685

9,9857,699

18,5289,4089,120

104.894.2118.5

453269184

17,498

10,1827,316

20,14510,1649,981

115.199.8136.4

422235187

18,802

10,6948,109

13,5466,0157,531

72.056.292.9

400203197

18,985

10,6848,302

12,6914,6538,038

66.843.696.8

MozambiqueTanzania

ChinaMalawiZambia

IndiaUSA

SwazilandSouth Africa

EUThailandAustralia

Brazil

0 10 20 30 40 50 60

PER CAPITA CONSUMSTION 2006/07 est.

Kilograms Per Annum

Pakistan Auatralia

SADCMexico

ThailandUSA

ChinaEU

IndiaBrazil

0 5 10 15 20 25 30 35 40

TOP SUGAR PRODUCERS 2006/07 est.

Million tons

CubaColombia

South AfricaEU

IndiaGuatemala

SADCAustraliaThailand

Brazil

0 5 10 15 20 25

TOP SUGAR EXPORTERS 2006/07 est.

Million Tons